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Welcome to the first edition of our Clarity newsletter. The newsletter focuses on Fundhouse’s fund manager research and shares certain insights gained over the last eleven years of dissecting investment businesses, processes and teams. Fund research sits at the core of our business. It is central to everything we do and we believe as strongly as ever that qualitative, in-depth due diligence is the best approach to gain a deep understanding of all of the drivers of investment success. This allows us to make informed investment decisions and guide our clients accordingly.
Why “Clarity”? In today’s world, information is everywhere and everyone has an opinion that is easy to share. What we aim to do is to work through the “noise” to find the data points that really matter, to develop an informed and independent opinion based on all our analysis and ultimately to provide our clients with a clear picture of what is relevant. We believe that investment clarity is a non-negotiable for effective investment decisions in an increasingly complex investment world. Since Fundhouse was founded in 2007, we have seen a number of significant industry developments affecting investors which in turn has shaped our businesses and that of our clients.
Firstly, a number of global fund managers have registered and launched high-quality fund offerings at reasonable fee levels in South Africa. Our global research team has helped to identify top rated global funds for our clients, and we have seen these added to platforms. The added competition has been a significant positive for financial advisers and investors and we expect this to continue as local investors look beyond our shores for diversification and reach a level of comfort with these offshore managers.
We have also seen the global shift in developed markets (particularly in the US) away from active managers and into passive and smart beta offerings. Apart from applying pressure on active manager fees, the emergence of the index managers has forced active managers to be clear on their value add in order to survive. The shift has been significantly slower in the South African market for a range of reasons, but we would expect the local market to follow this global trend over time.
Finally, the local asset management market continues to be dominated in terms of flows by the large independent asset managers. Over the last ten years or so, many of the boutiques that were considered the “next big thing” have fallen away and, as a general rule, not been replaced by other incumbents. With these industry developments as a backdrop, our first article reflects on Fundhouse’s research journey from the early days of consulting to asset managers to today’s research process. Peter Foster takes us through how the process developed and shares certain key learnings from our work dissecting asset managers over time.
The investment team sits at the heart of any investment proposition. Lehan Kruger explains how a significant portion of our research is focused on assessing individuals and the team, despite it being so complex and challenging. Lehan discusses how we go about discerning between the marketing message and the reality that sits behind it.
There are a number of ways to successfully manage global equities. No approach or style has a monopoly on generating alpha over time and this offers significant diversification opportunities for investors. Stuart Copley considers the popular global equity investment styles, how they are generally implemented and the challenges that come with adopting each style. Rory Maguire, MD of our UK business, examines the predictive power of one of the accounting ratios least open to manipulation: free cash flow yield. Rory looks at the correlation between free cash flow yield and equity market performance and tests whether it may be a useful indicator of market valuations.
Fund research is at the core of building investment portfolios for clients. Peter Foster discusses our approach to building portfolios and sets out the layers of decision making that go into constructing portfolios with the ultimate aim of delivering good outcomes for the end investor. The entire process is centered around our belief that financial planning sits at the core of an investor’s financial journey and dictates the critical path investors need to take.
It is always instructive to reflect on the research journey so far, but we are as excited about what lies ahead. Our ambition remains protecting and growing the independent wealth management industry and ensuring the best possible investment outcome for end investors.